The latest hearing in the long running Rank case has recently progressed through the Court of Appeal. This case first came to the attention of most smaller operators in 2006 and relates to one of several cases Rank is currently involved in, known as ‘slots 1’.

The basic premise of the dispute is that between October 2002 and December 2005 income from certain slot machines (referred to in the appeal as ‘disputed machines’) was treated as VAT exempt because the machines had a remote Random Number Generator (RNG) and the VAT legislation stated that supplies were subject to VAT where ‘the element of chance is provided by means of the machine’. This was interpreted as meaning that if the RNG was in the machine income from that machine was subject to VAT. However, where it was not the income was VAT exempt. A change to the law in 2005 removed this distinction and income from all machines became taxable. However, Rank and many others argued that in the period where machines were treated differently there was a breach of fiscal neutrality and claims were submitted to recover VAT paid, many of which have since been repaid.

In this most recent hearing HMRC changed tactics and put forward the argument that the ‘disputed machines’ were wrongly categorised for VAT purposes, and in fact both types of machines should have been treated as taxable. The fact that the RNG was separate from the machine in a physical sense did not mean that the element of chance was not provided by the machine.

The court was persuaded by this argument because a literal interpretation made it easy for taxpayers to easily avoid tax (by removing the RNG from the machine). The court was therefore prepared to adopt a purposive interpretation of the legislation.

It seems likely that Rank will appeal this decision to the Supreme Court and this case will rumble on for some considerable time yet. However, HMRC has issued a Brief, which indicates that it will try to recover sums repaid to gaming machine operators.

Our latest newsletter is now available on our website.

This edition covers VAT Tribunal cases regarding:

1. Default Surcharge Appeals, successful and unsuccessful.

2. Face value vouchers and tax points.

3. The use of the appropriate flat rate scheme.

4.  Belly dancing not a subject ‘ordinarily taught in schools’.

VAT registered businesses that are required to submit declarations of arrivals (EU imports) trade received from other EU Member States and/or provide Delivery Terms information on an Intrastat declaration should note the following changes to Intrastat thresholds effective from 1 January 2014

• the exemption threshold for arrivals is increased from £600,000 to £1,200,000
• the Delivery Terms threshold is increased from £16 million to £24 million
• the exemption threshold for dispatches (EU exports) remains unchanged at £250,000

The latest CVC VAT Focus is now available.

The Court of Justice of the European Union (CJEU) has issued a preliminary ruling regarding the UK’s VAT treatment of sporting supplies, particularly in relation to golf clubs.

Under current UK VAT legislation supplies of services closely linked to, or essential to, sport or physical education of participating individuals, by an eligible body, are exempt; unless the eligible body operates a membership scheme and the recipient is not a member.

This means that supplies to non-members by eligible bodies who have a membership scheme are, currently, standard rated.

Bridport and West Dorset Golf club made a claim to HM Revenue & Customs for approximately £140,000 of overpaid output tax on the non-members’ green fees. The contention being that the UK law prescribing differing VAT treatments for members and non-members green fees was not in line with the European legislation.

HMRC refused to pay the claim and the matter went to Tribunal. At the First Tier Tribunal the taxpayer was successful and HMRC appealed the matter to the Upper Tribunal. The Upper Tribunal then referred several questions to the CJEU.

The CJEU has supported the tax payer. The arguments that HMRC advanced that non-membership fees are additional income or are creating an uncompetitive advantage for eligible body clubs compared to commercial enterprises who have to charge VAT have been dismissed.

Whilst this appears to give relevant eligible bodies grounds to make claims for overdeclared output tax there are additional issues to bear in mind.

• The increase in exempt income may adversely affect the recovery of VAT on costs incurred by the sporting body, including VAT on capital items. The impact of this should be considered by those affected.
•  The judgment of the Court specifically refers to the fact that the exemption cannot be restricted in regard of the operation of a golf club. It is not beyond possibility that HMRC will contend that the ruling only applies to golf clubs and not other sports clubs, although this is unlikely.
•  It is possible that HMRC will refuse to pay refunds in full if it considers that the claimant will be unjustly enriched.

If you would like to discuss this matter further please call or email your usual CVC contact or Dean Carey.

CVC will not be sending Christmas cards this year; instead we have made a donation to the Red Cross appeal to help those affected by the Typhoon in the Philippines. However, we would like to wish all our clients and regular readers a Merry Christmas and a happy and prosperous New Year

Our offices will be closed from 25 December to 1 January, inclusive.  If you have any urgent queries during that time please contact your usual CVC partner by email and they will respond to you as soon as possible.

The Chancellor’s did not announce any changes to VAT legislation in his Autumn Statement yesterday. However, he did advise that the Government intends to issue a consultation document regarding the possibility of amending the legislation in respect of VAT return filing requirements. This consultation is probably the result of a recent Tribunal case on the question of online filing of VAT returns.

In a recent First Tier Tribunal case ‘Planet Sport (Holdings) Limited’ the Appellant (Planet Sport) appealed against HMRC’s decision to refuse their voluntary disclosure in which they claimed a refund of overpaid VAT of £83,489 on the basis that their outputs were exempt supplies of welfare under Item 9, Group 7, Schedule 9 of VATA 1994.

The Tribunal decided that the after-school activities provided by Planet Sport could not fall within the VAT exemption in Item 9, Group 7, Schedule 9 of VATA 1994:

The supply by –

(a) a charity,

(b) a state-regulated private welfare institution or agency, or

(c) a public body,

of welfare services and of goods supplied in connection with those welfare services.

because Planet Sport was not ‘state regulated’ as defined in Note 8 (“state-regulated” means approved, licensed, registered or exempted from registration by any Minister or other authority pursuant to a provision of a public general Act, other than a provision that is capable of being brought into effect at different times in relation to different local authority areas.”)

OFSTED regulates the schools in which Planet Sport supplies coaches to run after-school activities, as part of this regulation  OFSTED carries out inspections of the schools; while OFSTED did have regard to what Planet Sport was doing it was in the context that the school itself was responsible for the activities taking place. Planet Sport was not itself required to be registered with OFSTED (neither was Planet Sport registered with OFSTED). As a result the Tribunal came to the conclusion that Planet Sport’s supplies of after-school activities did not fall within the welfare exemption because Planet Sport was not itself regulated by OFSTED, and although Planet Sport did contribute to the welfare of pupils this was a by-product of its essential service of sports coaching.

The FTT’s conclusion states:

 “28. We have found that Planet Sport was not, as a matter of fact, regulated by OFSTED or by any authority within the meaning of Note 8, and we accept Mr Manknell’s submission that the statutes in question, namely the various Education Acts, regulate the bodies they specify in relation to their activities, but do not regulate the activities in the abstract. Any other conclusion would, aside from departing from the clear wording of the Acts, produce the unworkable result that almost any entity providing services to a school related to its functions would become ‘regulated’ without there being any mechanism for the regulation to take place, to register approvals, or to withdraw them. As the Ulster case illustrates, it may also be difficult to draw the line between what is part and parcel of the school’s core functions and what is supplemental to the performance of them.”

Both HMRC internal guidance VATWELF2090 and Notice 701/2 Welfare para 3.3.1 define ‘state regulated’ as registered with and/or regulated by one of the following regulatory bodies:

• Care Quality Commission
• Scottish Commission for Regulation of Care (the Care Commission)
• Care and Social Inspectorate of Wales
• Northern Ireland Regulation and Quality Improvement Authority
• Office for Standards in Education (OFSTED) or
• any similar regulatory body.

If you provide after-school activities in similar circumstances to Planet Sport and are concerned about the VAT treatment, please contact us.

This edition contains:

HMRC News

• The withdrawal of the concession in relation to Road Fuel Scale Charged paid by partially exempt businesses
• Countdown to place of supply changes taking place on 1 January 2015

Case Updates

• Esporta-late payment by gym members
• National exhibition Centre- liability of booking fees
• Chubb Ltd-professional fees in relation to share issues
• Terry McCann-is outdoor swimming pool part of new dwelling

Read in full

HMRC is reminding businesses that on 1 January 2015, changes will be made to the European Union (EU) VAT place of supply of services rules involving business to consumer (B2C) supplies of broadcasting, telecommunications and e-services.

If these changes affect your business you need to start planning for them now. From 1 January 2015, you will need to keep records about the range of electronic services you supply and about your customers and where they are located. If you need assistance in preparing for this change CVC can help.

Read more on HMRC’s website.

A number of these cases have been published recently. There is an important distinction between the first group of businesses required to make submissions on-line from 1 April 2010 (those with a turnover of more than £100,000) (known as tranche 1 businesses) and all other businesses that were required to submit electronic returns (with effect from 1 April 2012), known as tranche 2 businesses.

The first was a lead case for a number of tranche 2 taxpayers. The appeal was made by a business called Le Bistingo Ltd and related to the standard letter issued by HM Revenue & Customs in February 2012 informing taxpayers of the required compulsory on-line submission of VAT returns. HMRC’s contention was that the letter itself was not an appealable decision. The tribunal accepted that the letter was not an appealable decision. Unless the issue was the application of the liquidator’s or religious grounds exemption, the only way to generate an appealable matter in these circumstances is to not submit or pay the return on time and be issued a penalty which is an appealable matter. The appeal was dismissed.

In another tranche 2 case Mr & Mrs Blackburn traded as Cornish Moorland Honey. To recover VAT on costs they voluntarily registered for VAT. It was the Blackburn’s contention that their religious beliefs forbade them from using computers (and televisions and mobile phones) or asking a person to use a computer on their behalf. Therefore they should be exempted from electronic submissions of VAT returns. Mr & Mrs Blackburn indicated that if the Tribunal agreed with HMRC then they would de-register for VAT. The Tribunal noted that right to recover input tax was a fundamental right under European law. Mr & Mrs Blackburn were members of the Seventh-day Adventist church. Whilst the fundamental beliefs of this church are not incompatible with the use of electronic communications, it was the Blackburn’s belief that to be righteous (as their church said they must) they had to act with their own consciousness, which for them was a shunning of electronic media.

The VAT regulations on electronic submission allows for exemption for members of religious orders whose beliefs are incompatible with the use of electronic communications. As this was not the case here. HMRC contended that the exemption could not apply. Whilst the Tribunal agreed with HMRC, it was also necessary to, consider the application of the Human Rights Act. The Tribunal ruled that the nature of the personally held convictions of the Blackburn’s was a direct result of their interpretation of the Seventh-day Adventist Church’s beliefs. As such HMRC’s rejection of the exemption was in contradiction of the Blackburn’s rights under the Human Rights Act,and the Blackburn’s appeal was allowed.

The lengthiest case related to four tranche 1 taxpayers whose objection to making electronic payments was their opinion that this is inherently unsecure. The Tribunal ruled that the legislation did not guarantee risk-free methods of payment.  Nor did it require the taxpayer to commit their banking details to the internet. As a result the appeal was dismissed.

Other appellants grounds for contesting the obligation to make electronic returns were a mix of computer illiteracy, disability, remoteness of location, costs and type of business. The Tribunal concluded that, by applying the Human Rights Act, the obligations imposed by HMRC failed to make exemptions for elderly, disabled or remotely located persons and as such were unlawful. Therefore the appellants did not have to make electronic submissions of VAT returns.

One fact to come out of this case was that HMRC offers telephone filing to taxpayers who have contacted the National Advice Service and mentioned that they are disabled and/or over 60. This service has deliberately not been publicized and involves HMRC calling the tax payer at a pre-determined time. The taxpayer confirms the VAT return figures to a HMRC officer, who inputs them into a computer then submits the VAT return.